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Another 936 question

Purchased home 05/2016, mortgage of 585,000.

Did cash-out refi in 11/2021 for 822,375.

All cash proceeds of 222,768 were used to improve property (pool, basement remodel, new screen porch, etc.).

Would I be able to use 1M cap, rather than 750K cap, and fully deduct all mortgage interest since all of the cash-out refi was used for the home?


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1 Reply
Level 11

Another 936 question


Refinanced home acquisition debt.


@jb_atl Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing. Any additional debt not used to buy, build, or substantially improve a qualified home isn't home acquisition debt.

So in your scenario sadly you are subject to the 750k as the balance prior to refi was under.  Sorry.


mtge int ded.gif






Addtl helpful info:

if part of the refinanced mortgage money was used to finance
improvements to the home and if the taxpayer meets certain other requirements, the
points associated with the home improvements may be fully deductible in the year the
points were paid. Also, if a homeowner is refinancing a mortgage for a second time,
the balance of points paid for the first refinanced mortgage may be fully deductible at
pay off.
Other closing costs – such as appraisal fees and other non-interest fees –
generally are not deductible. Additionally, the amount of Adjusted Gross Income can
affect the amount of deductions that can be taken. 

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